Claim a tax refund for your failed company
Has your limited company hit hard times?
It is a sad fact of business that many companies fail and the owner/directors lose the money invested in the shares and loans made to the company. The shares in the company become worthless i.e. have negligible value and the owner has made a, sometimes substantial, loss.
Make a negligible value claim
If you are in this situation, you can make a claim to offset the loss against your other income. If you are a higher rate tax payer or have been in recent years, you may receive a tax refund of upto 40% of the loss.
A negligible value claim enables you to set a capital loss against your income (or against other capital gains if you have them) for earlier years and claim a refund of tax already paid.
Many negligible value claims are made by shareholder directors whose company has failed. Their claim is to offset the loss on the shares in their company against their directors’ wages for earlier tax years. Depending upon the tax paid in the earlier year, they can receive a tax refund of upto 40% of the loss in the value of their shares.
How you calculate your capital loss
If you are making your tax refund claim due to your shares becoming worthless (i.e. of negligible value) you can only claim if, when you disposed of the shares (or on the date you are claiming they became worthless):
- The shares were ordinary shares
- You subscribed for the shares (you cannot make this claim if you purchased the shares off someone else)
- The company was a trading company or an eligible trading company throughout the six years to the date of disposal, or
- The company was a trading company or an eligible trading company throughout its active existence if that is less than six years.
The terms “trading company” and “eligible trading company” are explained in HM Revenue & Customs help sheet IR286
Reclaim higher rate tax you have already paid
If you were a higher rate tax payer in any of the two previous tax years you can make a negligible value claim which treats the loss as if it was made in either of those two years.
For example, if your asset became worthless in September 2008, which was in the 2008/2009 tax year you can make a negligible value claim as if it became worthless in either the 2006/07, 2007/08 or 2008/09 tax years. The claim can be made in your 2008/2009 tax return and must be made by 31 January 2010 or, if you want to claim a tax refund for 2006/2007, in writing.
How to claim your tax refund
Firstly you have to calculate the amount of loss you wish to claim. You can do this yourself, or use a refund specialist such as HRBS. We can prepare and make your claim for you, or, if you prefer, we can check over your claim before you submit it to HM Revenue & Customs.
How long does a negligible value claim take?
If you are making your negligible value claim in writing, depending upon the complexity of your claim and the time of year the claim is made, you may receive your tax refund in 6 to 8 weeks. If you use HRBS to submit your claim, we will liaise with HM Revenue & Customs on your behalf and keep you informed of the progress of your claim.
For further information and discuss how HRBS can help you, please contact us .
An extended version of this article is on our HRBS information mini-site at negligiblevalueclaim.co.uk